Grocery inflation has fallen to its lowest rate in almost two years with prices in supermarkets rising by just 5.3% this month, new figures reveal today.
The pace of price hikes during the four weeks to 18 February, marks a drop of 1.5 percentage points since January and the slowest since March 2022, according to data from analysts Kantar. Supermarket sales rose 5.1% over the same period suggesting that more confident shoppers are buying around the same volume of groceries as they did a year ago.
The numbers will be a boost to Jeremy Hunt as he puts the finishing touches to a pre-election Budget on March 6.
They suggest that spikes in container rates following Houthi attacks on shipping in the Red Sea has not yet translated into prices on the shop floor. Further falls in inflation will reduce the interest bill on index linked gilts, giving the Chancellor more wiggle room for tax cuts, while the Bank of England will take encouragement from the figures ahead of a possible interest rate cut in May or June.
Tom Steel, strategic insight director at Kantar, said: “Things are looking up for shoppers this February. Consumers have been navigating a grocery inflation rate of more than 4% for two years now, so this latest easing of price rises is especially welcome. Though there’s been lots of discussion about the impact the Red Sea shipping crisis might have on the cost of goods, supermarkets have been pulling out all the stops to keep prices down and help people manage their budgets.
“This month, Morrisons became the latest retailer to launch a price match scheme with Aldi and Lidl, after Asda made the move in January. More generally, we saw promotions accelerate this month after a post-Christmas slowdown. Consumers’ spending on offers increased by 4% in February, worth £586 million more than the same month in 2023.
“Sainsbury’s and Iceland’s efforts paid off in particular, and they were the only retailers to attract more shoppers through their doors. The battle between supermarkets’ own-label lines and brands also remains fierce. Own-label nipped ahead this month, growing sales by 5.5% versus branded products at 5.3%.”
Valentine’s Day proved a big winner for stores with sales of steak and boxed chocolate sales up by 12% and 16% respectively compared with last year. However, there was less good news for the hospitality sector with restaurant closures surging to a record high of 514 in the fourth quarter of last year, smashing the previous record of 481 in the second quarter of 2023, according to data from accountants Price Bailey.
Matt Howard, head of the insolvency and recovery team at Price Bailey, said: “Many hospitality businesses are on life support, and with the services sector leading the way into recession, business failures in the restaurant trade are likely to continue to rise throughout 2024.
“The inflation rate for restaurants crept up again in January and hopes of an early rate cut appear to be receding. The first quarter is a much slower trading period for restaurants, which will make it very difficult for many to recover from a lacklustre festive season.”
He added: “The longer rates stay at current levels, the more restaurant businesses are likely to succumb. As rates have risen banks are piling pressure on restaurants to make capital as well as interest repayments on loans. This has proved the final nail in the coffin for many restaurants.”
